When the Window Closes for Americans

Something I think you can plan your life around is the eventuality of the US government imposing capital controls and other restrictive measures on the movement of people and capital.

Any country that is sufficiently desperate can and will implement such measures.

The big question remains: When will this happen in the US?

I believe that moment will arrive sometime before it is apparent that the US dollar has lost its place as the world's premier currency.

The ramifications of the US dollar losing this status are difficult to overstate. It will be the tipping point at which the US government becomes sufficiently desperate.

Of course, a real or manufactured crisis could push that date forward – all the more reason to take action sooner than later.

Over the past 100 years, the international monetary system has collapsed 3 times: in 1914, in 1939, and in 1971 when Nixon severed the dollar's last ties to gold. It appears we are soon due for another major reshuffle of the current dollar-centric international monetary order.

Nobody knows the exact date on which the US dollar will lose its prized status, though it is objectively clear that we are moving in that direction.

Just one recent example of this is the precedent-setting agreement between China and Australia.

This agreement will enable them to directly exchange their currencies without having to use the US dollar as a middleman currency.

It is the beginning of a historic shift, and other Asian countries are expected to follow suit.

Why is this important? Because it cuts out the middleman and chips away at the US dollar's reserve status.

The US dollar benefits immensely from this reserve currency role. The US dollar essentially acts as a middleman in international trade that has nothing to do with the US, which generates artificial demand for US dollars.

The majority of international trade is conducted in US dollars. This means that most countries that wish to engage in trade need to first buy US dollars on the FX market. This creates demand for the dollar, which translates into value for the dollar.

Imagine the aggregate effect on the value of the dollar that comes from all of this artificial demand for dollars due to its role as the middleman in international trade. It is enormous.

It has allowed the US government and citizens to live beyond their means for decades. It also gives the US government immense political leverage. They can pick and choose who they want to cut off from the US-dollar-based financial system – and by extension the vast majority of international trade.

All of these unique benefits, which have been taken for granted for decades, will disappear when the dollar loses its premier status. That is when the US government is likely to be desperate enough to enact the restrictive measures that we all fear.

It is not going to happen tomorrow, but it is clear the direction we are headed. The window of opportunity continues to get smaller. The good news is that there is still time to take action before it is too late.

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